5 Factors of Credit Scoring
The current scoring system uses 5 various factors to comprise your personal credit score. Each of the 5 are awarded points, they are listed in order of importance:
1. Payment History - 35% Impact
Payment debt on time and in full has the greatest positive impact on your personal credit score. Late payments, charge-offs, judgments, liens, etc. all have a negative impact. Missing high dollar payments has a greater impact than missing a smaller monthly payment. Delinquencies that occur within the last 24 months carry more weight than older items.
2. Outstanding Credit Balances - 30% Impact
This factor marks the ratio between your outstanding balance and your available credit. In a perfect situation the consumer should make an effort to keep balances at or below 30% of the available credit. When you extend your balance above the limit, this actually lowers your credit score.
3. Credit History - 15% Impact
This portion of your credit score indicates the length of time in a particular credit line was established. If you have a lot of trade lines established over a long period of time this increases your ability to borrow under more favorable terms.
4. Type of Credit - 10% Impact
A mix of mortgage, auto, and revolving is more positive than a concentrated debt load of credit cards.
5. Inquiries - 10% Impact
This percentage of your credit score quantifies the number of inquiries made on a consumers credit within a 6 month period. Each inquiry can cost from 2 to 25 points on a credit score, but the maximum number of inquiries that will reduce your score is 10. In other words, 11 or more inquiries within a 6 month period will have no further negative impact on a borrowers credit score. If you run a credit profile on yourself it has no impact on your credit score.
Please remember that your credit score is a computerized calculation. Personal factors are not taken into consideration when a credit report is generated. It is merely a snapshot of today’s credit profile for any given borrower, and it can fluctuate dramatically within the course of any week.